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MNI US MARKETS ANALYSIS - Equities Consolidate Post-CPI Gains

Highlights:

  • The ECB will cut the deposit rate by 25bp at this week’s meeting, but is not expected to show any signs of pre-commiting to another cut in October.
  • Equity rally provides stability in G10 FX, with ranges remaining contained so far.
  • Aside from the ECB, US PPI data and initial jobless claims highlight the economic calendar.

US TSYS: Lower Across the Curve, Mostly Within CPI Range

  • Treasuries have sold off across the curve, remaining within yesterday’s CPI-induced lows through 2-10Y benchmarks but with 30s breaking lower.
  • PPI and jobless claims at 0830ET headline the session but there is 30Y supply also on the docket. The week's coupon issuance has been digested well, with 3s trading through by 1.6bps and 10s yesterday trading through by 1.4bps.
  • Cash yields are broadly 2.5bp higher on the day.
  • 2s10s at 1.2bps remains in positive territory but holds yesterday’s flattening for a little further off recent highs of ~8bps.  
  • TYZ4 is at 115-06 (-04+) on reasonable cumulative volumes of 315k, but remains within yesterday’s post-CPI low of 115-02. Firmer support is seen at 114-27+ (Sep 10 low) before 114-10 (20-day EMA).
  • Data: PPI inflation Aug (0830ET), Weekly jobless claims (0830ET), Household chg in net worth Q2 (1200ET), Monthly budget statement Aug (1400ET but Bloomberg already shows as released)
  • Note/bond issuance: US Tsy $22B 30Y Bond auction re-open - 912810UC0 (1300ET)
  • Bill issuance: US Tsy $80B 4- & 8W bill auctions (1130ET)

STIR: Consolidating Post-CPI Moves But Still 105bp of Cuts to Year-End

  • Fed Funds implied rates hold or have modestly extended yesterday’s increase on the CPI report with its strong rental inflation components.
  • Cumulative cuts from 5.33% effective: 28.5bp Sep, 65bp Nov, 105bp Dec, 141bp Jan and 219bp June.
  • It sees a 25bp cut next week as increasingly locked in (28bp priced by 32bp pre-CPI and 37bp pre-Waller) but there is still a path of heavy rate cuts further out.
  • Incremental cut pricing of 37/39/37bp cuts for Nov/Dec/Jan meetings compare with 40/41/39bp pre-CPI.
  • Today’s 0830ET data are the main risk events, with PPI watched for the usual PCE implications and likely continued sensitivity to weekly jobless claims. 

STIR: Longs Cut in Front End of SOFR Strip Post-CPI, Shorts Set Further Out

Preliminary OI data points to long cover dominating in the very front end of the SOFR strip as yesterday’s CPI data prompted an unwind of positions looking for a 50bp Fed cut later this month, while short setting dominated further out.

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Highlights:

  • The ECB will cut the deposit rate by 25bp at this week’s meeting, but is not expected to show any signs of pre-commiting to another cut in October.
  • Equity rally provides stability in G10 FX, with ranges remaining contained so far.
  • Aside from the ECB, US PPI data and initial jobless claims highlight the economic calendar.

US TSYS: Lower Across the Curve, Mostly Within CPI Range

  • Treasuries have sold off across the curve, remaining within yesterday’s CPI-induced lows through 2-10Y benchmarks but with 30s breaking lower.
  • PPI and jobless claims at 0830ET headline the session but there is 30Y supply also on the docket. The week's coupon issuance has been digested well, with 3s trading through by 1.6bps and 10s yesterday trading through by 1.4bps.
  • Cash yields are broadly 2.5bp higher on the day.
  • 2s10s at 1.2bps remains in positive territory but holds yesterday’s flattening for a little further off recent highs of ~8bps.  
  • TYZ4 is at 115-06 (-04+) on reasonable cumulative volumes of 315k, but remains within yesterday’s post-CPI low of 115-02. Firmer support is seen at 114-27+ (Sep 10 low) before 114-10 (20-day EMA).
  • Data: PPI inflation Aug (0830ET), Weekly jobless claims (0830ET), Household chg in net worth Q2 (1200ET), Monthly budget statement Aug (1400ET but Bloomberg already shows as released)
  • Note/bond issuance: US Tsy $22B 30Y Bond auction re-open - 912810UC0 (1300ET)
  • Bill issuance: US Tsy $80B 4- & 8W bill auctions (1130ET)

STIR: Consolidating Post-CPI Moves But Still 105bp of Cuts to Year-End

  • Fed Funds implied rates hold or have modestly extended yesterday’s increase on the CPI report with its strong rental inflation components.
  • Cumulative cuts from 5.33% effective: 28.5bp Sep, 65bp Nov, 105bp Dec, 141bp Jan and 219bp June.
  • It sees a 25bp cut next week as increasingly locked in (28bp priced by 32bp pre-CPI and 37bp pre-Waller) but there is still a path of heavy rate cuts further out.
  • Incremental cut pricing of 37/39/37bp cuts for Nov/Dec/Jan meetings compare with 40/41/39bp pre-CPI.
  • Today’s 0830ET data are the main risk events, with PPI watched for the usual PCE implications and likely continued sensitivity to weekly jobless claims. 

STIR: Longs Cut in Front End of SOFR Strip Post-CPI, Shorts Set Further Out

Preliminary OI data points to long cover dominating in the very front end of the SOFR strip as yesterday’s CPI data prompted an unwind of positions looking for a 50bp Fed cut later this month, while short setting dominated further out.

Keep reading...Show less